CEO Optimism and Competitive Shocks

70 Pages Posted: 23 Aug 2018 Last revised: 22 Jul 2022

See all articles by Binay Adhikari

Binay Adhikari

University of Texas at San Antonio

Shradha Bindal

University of Kansas - Finance Area

T. Colin Campbell

University of Cincinnati - Department of Finance - Real Estate

Shane A. Johnson

Texas A&M University - Department of Finance

Date Written: July 21, 2022

Abstract

We examine differences in how overoptimistic and non-overoptimistic CEOs respond and perform when faced with competitive shocks. Using tariff reductions as exogenous shocks to competition and triple difference specifications on matched samples, we find that when competition increases, firms with overoptimistic CEOs slash their profit margins and increase research and development and advertising more than non-overoptimistic CEOs do. Our novel finding is that CEO overoptimism benefits these firms, here through increased domestic market share and increased value relative to firms led by non-overoptimistic CEOs. Our empirical results support extant theories that predict that CEO overoptimism is beneficial under increased competition.

Keywords: CEO overconfidence, competition, tariffs, firm value, market share

JEL Classification: D22, L11, G31, F14, M12

Suggested Citation

Adhikari, Binay Kumar and Bindal, Shradha and Campbell, Timothy Colin and Johnson, Shane A., CEO Optimism and Competitive Shocks (July 21, 2022). Available at SSRN: https://ssrn.com/abstract=3223778 or http://dx.doi.org/10.2139/ssrn.3223778

Binay Kumar Adhikari

University of Texas at San Antonio ( email )

1 UTSA Circle
San Antonio, TX 78249
United States
2104585349 (Phone)

Shradha Bindal

University of Kansas - Finance Area ( email )

1654 Naismith Drive
Lawrence, KS 66045
United States

Timothy Colin Campbell

University of Cincinnati - Department of Finance - Real Estate ( email )

College of Business Administration
Cincinnati, OH 45221
United States

Shane A. Johnson (Contact Author)

Texas A&M University - Department of Finance ( email )

Mays School of Business
College Station, TX 77843-4218
United States
979-862-3318 (Phone)

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